Proxy Contests Raging
By Michael P. Bruno, Staff Writer
2003.16.05

At California-based technology company Celeritek Inc., dissident shareholders "believe
the current board can no longer be trusted to protect the interests of shareholders."

In Atlanta, at apartment complex operator Post Properties Inc., rebel stakeholders,
including the company's former chief executive, claim the incumbent board has
been "clearly adverse to the best interests of all of the company's shareholders."

And at Houston-based natural gas services giant El Paso Corp., a major individual
shareholder asserts that "El Paso's board and management have failed in
their stewardship of the investment with which the company's shareholders entrusted
them."

If it's spring, it must be time for another round of proxy contests for seats
on boards of directors. But the rhetoric isn't the only thing rising this proxy
season; industry observers are noting that 2003 is shaping up to be another
pacesetting year. Angry shareholders, riled by subdued stock markets and emboldened
by corporate governance awareness, are flexing their muscles.

"There are a significant number of contests this year. We are seeing
increased numbers," said Chris Hayden, director at proxy solicitor firm
Georgeson Shareholder Communications Inc.

"There is an excess amount of activity," said Rick Grubaugh, senior
vice president at D.F. King & Co. Inc., another proxy solicitor group. "We've
got a depressed market and investors know they have a strengthened hand."

According to a tally from Institutional Shareholder Services Inc., there are
more than 17 proxy contests for control of board seats already this year. The
embattled companies, most small and medium capital, center on a few categories
such as technology (e.g., Celeritek and Computer Horizons Corp.) and finance
(like Financial Industries Corp. and United National Bancorp). And proxy solicitors
tell ISS that their pipelines contain around 40 more potential contests, possibly
lasting well into fall.

"We're seeing tech companies getting hit," Grubaugh said. Three
years ago, "new economy" businesses rarely faced proxy contests because
employees were considered their major assets. Now, investors are counting the
cash in the bank. As for financial institutions, small and regional banks are
always under attack because "there's always a logical acquirer," he
said.

"It will probably continue at the current pace," Hayden said of
the number of proxy contests. And with the Securities and Exchange Commission
officially reviewing shareholder access to proxy ballots and other procedures
for electing directors, he said the number of contests could remain high for
the next few years.

There were 38 total such proxy fights last year, 40 in 2001, and 30 in 2000,
which follows a 10-year trend of steady annual growth in the number of proxy
battles, according to data from Georgeson. For instance, there were just three
contests in 1993. But since then the stock markets have risen and fallen dramatically
and the volatility has awoken the slumbering shareholder masses, observers
said.

"We're coming off three years of dismal stock performance and you've
got a shareholder base that is pretty grumpy," Professor David L. Ikenberry,
chair of the finance department at the University of Illinois at Urbana-Champaign,
told The Friday Report. Ikenberry and Professor Josef Lakonishok authored a
1993 report that studied 20 years' worth of proxy contests.

But observers say what is really happening behind the scenes are Shakespearean
debates of to sell or not to sell and, of course, money. When the stock markets
climbed, investors expected their companies to make acquisitions. Now that
stocks are lower, investors are looking for exit strategies and they want their
companies to be more open to being acquired. In turn, rebel shareholders are
utilizing recent awareness over corporate governance and couching their arguments
in such terms.

"You can think of a proxy fight as a disciplinary mechanism," Ikenberry
said.

"It is a power move," Grubaugh said. "Activists have been preaching
this stuff for years and nobody listened. This year they have a lot of clout."